Boat-maker in China split with partner

CASTING OFF TO MAKE A PROFIT

September 01, 1991|By Robert Benjamin | Robert Benjamin,Beijing Bureau of The Sun

Xiamen, China -- Throw out all those thick tomes on how to do business in China. Don't waste money on expensive consultants.

After more than 11 years trying to build luxury yachts here, Bryce Fuhriman is certain he's found the path to profits in China: "Get rid of your Chinese partner."

Mr. Fuhriman, the American owner of Xiamen Celestial Yacht Ltd., stumbled on his axiom the hard way: by spending his first seven years here in an unprofitable, increasingly acrimonious partnership with a Chinese company.

That painful experience provides the basis for his second rule of thumb for doing business in China: "Success here only comes with a great abundance of patience."

His company -- exporters of 32-foot to 49-foot fiberglass sailboats with hand-rubbed Burmese teak interiors -- has only now begun to make money after taking the unusual step of completely divorcing itself from its Chinese partner in 1987.

That separation would not have been possible, Mr. Fuhriman says, without the help of Chinese friends in positions of power. And that leads to his third and final bit of advice: "It is absolutely necessary to take the time in China to make lots of friends."

Mr. Fuhriman's motive in moving from a joint venture to a wholly owned company was simple. He says he couldn't make quality sailboats -- or a profit -- without complete control over his boatyard.

His Chinese partner's control of Celestial's plant meant continual problems from workers who couldn't be motivated; supervisors appointed because of their political clout rather than their knowledge of building boats; pilferage of imported materials; and the loss of workers he had paid to send overseas for training.

"I had every kind of problem imaginable," the 62-year-old Oregon native said. "It was very difficult to get anyone to do anything when I had no control over hiring and firing.

"Chinese workers are low-cost, smart, easy to train and can be very dedicated, but the 'ganbus' [Chinese organization functionaries] are only interested in themselves. Their real interest was in taking over my company and kicking me out of China."

Mr. Fuhriman's experience here may not be precisely replicable by others, but his is a case study that underscores some of the reasons why there has been a marked increase in recent years in wholly owned foreign ventures here relative to partnerships with Chinese companies.

Joint ventures still account for most of the more than 14,000 foreign-backed enterprises now operating in China. They account for just 3 percent of China's total industrial output -- but more than one-fifth of its overseas trade.

Meanwhile, the number of solely owned foreign ventures has been skyrocketing: from only 18 such firms in operation in 1986 to 1,800 by the end of last year. Another 1,100 were approved by China in the first half of this year, with much of the new foreign capital pledged from Taiwan, Hong Kong and Japan.

Additionally, a growing but unknown percentage of foreign investors involved in established joint ventures here have been increasing their shares of their enterprises.

These two trends have been welcomed by China in recent years because of a national austerity campaign that has dried up local sources of capital for investing in new ventures with foreigners. Reflecting this new interest in solely owned foreign ventures, China at the end of last year published for the first time detailed regulations governing such enterprises.

For foreign investors, the trend away from joint ventures stems from "the growing realization that a wholly owned operation is a better option if control of everything inside your plant is most critical," said John Frisbee, the representative of the U.S.-China Business Council here.

The downside to a solely owned enterprise here is that not having a Chinese partner, in some cases, can limit a foreign company's "access to influence within China's bureaucracy and to Chinese-supplied materials," Mr. Frisbee said.

"If you can find good Chinese partners," he said, "they can help you a lot in accessing the system. That's why most companies still go with joint ventures."

Under the new Chinese regulations governing wholly owned foreign enterprises, companies also must export more than half their production and must balance their foreign exchange by themselves -- that is, their hard currency revenues from exports must at least equal their hard currency expenditures for imports.

Mr. Fuhriman says his company, which has sold virtually all of its yachts overseas, does not have either of these financial problems these days. And he claims that he has made better contacts with the Chinese bureaucracy on his own than through his previous partner, a Xiamen fishing boat company.

Still, his divorce from his partners may have left some hard feelings in Xiamen political circles. Officials at the Chinese company would not comment on Mr. Fuhriman. And when asked about Celestial, a Xiamen deputy mayor, Zhang Zhongxu, replied with studied coldness: "Is he still here?"